How to get your children on the property ladder

Are your children or grandchildren struggling to get their foot on the property ladder? With property prices as high as they are, first-time buyers are finding it harder than ever to save for a mortgage deposit. Equity release could be a way to lend a hand...

So, what’s the problem?

It seems like we’re always hearing about rising property prices. And if you’re already a homeowner, you may have reaped the benefits over the years.

Back in 1976, the average house price in the UK was £12,704* – but today, it’s reached a whopping £227,000.^ This can be great news for older homeowners who’ve made money from property, but sadly these high prices are leaving the younger generation struggling to buy a home of their own.

In the UK, the average deposit needed to buy a house is around £20,000, while in London the typical deposit is now more than £80,000‡. That’s a lot of money to find in itself – but on top of that, the squeeze on wages and low interest rates in savings accounts are making things even harder for first-time buyers.

Even for those who think they have enough for a mortgage deposit, it isn’t always plain sailing to get a foot on the ladder. They can still face problems, including things like:

Mortgage providers won’t lend them money

They can get a mortgage, but the monthly repayments would be too expensive

They could get a more affordable mortgage if they had a bigger deposit

*Office for National Statistics

^Office for National Statistics, average UK house price, April 2018

‡Source: Nationwide Building Society

Wouldn’t you love to help?

Most of us would love to give our nearest and dearest a head start in life. And if your children or grandchildren are currently in a similar situation, you may be wondering how you could help them get their first house or flat. Depending on your circumstances, you could:

1. Buy a home for them to live in

If you have the money to do so, you could decide to buy a second home and let your children or grandchildren live in it – or you could become joint owners of a property with them. This means that the property would be in your name, or both of your names, rather than theirs alone.

2. Give them the money to buy a home

If you’d prefer to give a child or grandchild more financial independence and take responsibility for their own accommodation, you could decide to give them the money for a mortgage deposit – or top up the money they’ve saved for a mortgage deposit.

It’s also worth noting that, even if they’ve already managed to save enough for a mortgage deposit, making an additional contribution could give them access to more providers and better deals. It could make monthly repayments more affordable, or they could choose to shorten the repayment term.

How could you fund it?

If you’re considering helping a child or grandchild onto the property ladder, in an ideal world you’d already have a cash sum in the highest interest bearing account you can find – or a tax-efficient savings plan. You’d also be in a position to cash-in any funds invested in an ISA.

But what if you don’t have a cash lump set aside, ready and waiting to help your family? Well, if you’re a homeowner, it could still be possible to lend a hand by making the most of the value tied up in your property. Just make sure you seek advice before giving money away, so you fully understand the implications of what you’re doing.

Downsizing

Moving to a smaller, cheaper property is one way to release equity to help buy another property for a family member. It means you could pay off any remaining mortgage you owe, and then you could give any money left over (minus solicitor costs and other fees) to a family member.

If you don’t want the upheaval of moving, or you just couldn’t imagine leaving your home, that’s understandable. The options listed below could be more suitable for you.

Remortgage

You could consider borrowing against the equity in your home by remortgaging. If you’ve been paying off your mortgage for a while, or you’ve paid it off altogether, you’ll have built up equity in your property over time – and you could borrow money against that equity to give to your children or grandchildren.

For older borrowers, though, it isn’t always easy to remortgage to release equity to buy another property. It depends on your circumstances and the individual lenders. For example, you’ll need to prove that the income from your pension would be more than enough to cover the repayments on the mortgage – to make sure it’s affordable for you.

Equity release

If you’re a homeowner aged 55 or over, equity release is another way of releasing equity from your home to help buy another property for a loved one. That’s because a lifetime mortgage (the most popular type of equity release plan) allows you to tap into the value in your property without having to sell up and move.

With equity release, you can get hold of your money as a tax-free lump sum or in smaller amounts as and when you need them. Then the money is yours to spend as you wish – whether that’s helping a child or grandchild onto the property ladder, or keeping it for yourself.

Affordability isn’t an issue, as you don’t have to worry about monthly repayments (although it’s possible to make them, if you’d like to). Instead, your loan plus interest is repayable when your own home is sold, which is usually when you pass away or move into long-term care.

It’s an early inheritance

Whether it’s a full mortgage deposit or a boost to their savings, your gift could provide a welcome leg-up to your children or grandchildren when they really need it. One way to look at it is that you’re giving them their inheritance early – rather than waiting until you’re gone – and you’ll get to see the joy it brings to their lives during your lifetime.

That said, equity release isn’t right for everyone. So make sure you do your homework first. And you should always get advice from a professional before making any final decisions.

Take care of yourself

However you’re planning on helping a family member onto the property ladder, it’s important to take your own financial needs into account as well.

For example, if you decide to unlock funds from your home with equity release, you may want to use some of the funds to help make your retirement more comfortable. And then anything left over could go to your children or grandchildren.

Before you make any big financial decisions – including releasing equity from your home to buy another for your children or grandchildren, or giving their finances a boost – it’s important to seek advice from an independent expert adviser. They can also talk you through the possible inheritance tax implications of giving money away to your family.

The SunLife Over 55 Equity Release Service is on hand to help, so feel free to call to find out more.

Releasing the equity in your home is a big decision. It’s important to consider all of your options before deciding whether this is the right way for you to finance your plans.

You should always seek professional advice so you understand what’s involved and the fees you’ll need to pay. An independent expert adviser will be able to assess your personal situation and advise you on the best option for you.

For extra reassurance, you could get a specialist solicitor to explain your legal obligations.

It’s also important to include your family in the decision so they understand how it would work for you and affect them, particularly in relation to inheritance.

Here's the information that you need to know about who we are and the other companies that we work with in order to provide our products and services.

Who are SunLife?

Phoenix Life Limited trades as SunLife and is the provider of the Guaranteed Over 50 Plan, SunLife Insurance and the life insurance policy payment option for Funeral Plans. Phoenix Life Limited’s registered office is at 1 Wythall Green Way, Wythall, Birmingham, B47 6WG (registered in England, no. 1016269).

You can contact us by post at SunLife, PO Box 1395, Peterborough, PE2 2TR or by phone on 0800 008 6060.

If you choose to add Funeral Benefit Option to your Guaranteed Over 50 Plan, Dignity Funerals Ltd arranges and provides the funeral services, registered office: 4 King Edwards Court, Sutton Coldfield, West Midlands, B73 6AP (registered in England and Wales, No. 00041598). Dignity Funerals Ltd is a member of the National Association of Funeral Directors.

Who provides the Funeral Plans?

Dignity Funerals Ltd arranges and provides the funeral services, registered office: 4 King Edwards Court, Sutton Coldfield, West Midlands, B73 6AP (registered in England and Wales, No. 00041598). Dignity Funerals is not authorised or regulated for this activity by either the Financial Conduct Authority or the Prudential Regulation Authority. Dignity Funerals Ltd is a member of the National Association of Funeral Directors.

The life insurance policy that pays for your funeral will be provided by Phoenix Life Limited, trading as SunLife.

Hugh James is authorised and regulated by the Solicitors Regulation Authority (SRA Number:303202).

The information contained on this website is based on Hugh James' understanding of the law of intestacy in England and Wales only as at April 2014. The law in Scotland and Northern Ireland is significantly different. This is for information purposes and is not intended to be legal advice.